Most new listings on the Australian market are now revaluation frauds rather than genuine enterprises, and are listed for the sole purpose of creating a manipulable "market" price. Investment cartels commonly hold 90% or more of outstanding shares of such schemes and control their price. After ramping the share price, the inflated asset can be used to pad the books of investment cartel members, used to raise debt, or packaged into financial products and offloaded on granny investors.
There is zero justification in economic theory for the assumption that an asset controlled by an investment cartel will trade at a "market" price. Efficient market theory explicitly assumes many buyers and sellers, none of which individually can move prices. But if 90% of the shares of an asset are held by a small group that is incentivized to keep prices up, then the asset will not trade at a market price, but rather at a systematically inflated cartel price. You may call this The Benway Theorem. Efficient market theory deals with the Platonic ideal of a market, a perfect imaginary market, whereas The Benway Theorem deals with markets as they actually are. An increasing number of stocks are held by small investment groups, this is simply an indisputable statement of fact. Efficient market theory does not take into account the rise of financial intermediaries or their incentives, nor does it even consider the control of information by said intermediaries, instead it just assumes an infinite number of perfectly informed traders.
The most egregious example of revaluation fraud was Fifth Element Resources (FTH.AX), previously described in this blog post. FTH recently announced its "voluntary" delisting from ASX, having taken the scam too far even by Australian standards. With all outstanding shares held by 13 entities, ramping the worthless company to a $155m "market" cap just made this fraud a little too obvious even for complicit moron regulators. But FTH almost made it into the All Ordinaries index. As a service to future criminals, ASX has explicitly spelt out the requirements of revaluation frauds. In the announcement, it was revealed that ASX had required FTH to create a spread of 300 small investors holding at least $2,000 worth of shares, but FTH was unable to raise even this $600,000 in dumb money. Criminals should take note of this and plan their future listed securities fraud accordingly.
The business of listing and market manipulation is now more profitable than any actual operations, with even the most catastrophically loss-making enterprise still having utility as a listed securities fraud. The latest and most laughable trend is the listing of companies that are either bankrupt or teetering on the edge of bankruptcy. Migme Limited (MIG.AX) is a newly backdoor-listed fraud scheme on the ASX, dual-listed on the Frankfurt exchange for good measure. Migme was created by agglomerating a dog's breakfast of worthless and consistently loss-making internet companies, some of which already had gone out of business. Migme purportedly is a social media platform, with aspects of multi-level marketing, diversifying into e-commerce with forays into online gambling, recently adding a music service. Migme does a lot of things except make money. Even its core operations has plunging revenues and widening losses, as detailed in its annual report. Between 2013 and 2014, revenue fell from $2.9m to $1.9m, while losses widened from $4.3m to a staggering $28.3m. But operational performance is irrelevant to Migme's utility as a securities fraud.
In a few months after listing in its current form on the ASX, Migme's share price was ramped to $1.06 by the investment cartel controlling its price. According to ASIC, this was not a ramp but rather a magical market mystery, an enigmatic but wonderful occurrence for which an explanation just cannot be found. The ramp brought this joke of a company to a $200m "market" cap, and Migme was included in the All Ordinaries index as a top 500 Australian company. Ladies and gentlemen, this is your Australian stock market, this is where your money goes if your pension fund buys the index. Migme.
The investment cartel controlling Migme has some interesting members. FIH Mobile Limited (PINX:FXCNY), formerly known as Foxconn International Holdings Limited and part of the Foxconn group, holds 20% of Migme shares. Foxconn is predominantly known for working conditions so horrendous it drives its workers to suicide. What is less known is that the Foxconn group cooks its books, using a bewildering array of crossholdings and related party transactions. The Migme ramp allows Cayman-incorporated FIH Mobile to pad its books by making reference to the "market" value of its holding, a level 1 input in terms of IFRS 13. According to Note 19 on page 75 of the FIH Mobile annual report, the "fair value" of its listed investments in associates was US$44m as at 31 December 2014, exceeding the carrying book value by US$9m. However, the vast majority of this US$44m is Migme shares, and in the absence of the ramp, FIH may have been forced to impair the carrying value of its associates.